Gold experienced fluctuations at the end of last month amid broader market corrections, but it has since rebounded strongly. Buyers quickly responded to the changing sentiment, resulting in a renewed optimistic outlook for gold.
Continued trade conflicts and rising risk aversion are factors likely benefiting gold’s value. This trend appears to be straightforward, as central banks remain committed to cutting rates and increasing gold acquisitions.
Golds Upward Momentum
The ascent since last year has been unyielding, with prices nearing the $3,000 mark just three months into the new year. Concerns arise due to the lack of a healthy correction since surpassing the $2,075 resistance last year, resulting in approximately 45% gains without much retraction.
Such a rapid climb without any considerable pullback raises questions about sustainability. Although sentiment remains skewed towards further buying, extended periods without correction tend to heighten volatility. This pattern has been exacerbated by climbing inflows from both institutional and retail participants who may not be accustomed to such rapid moves in the market. If markets continue absorbing these gains without resistance, future swings could be harsher when corrections finally emerge.
The central bank stance on easing policy, coupled with ongoing geopolitical stress, sets the tone for a favourable pricing environment. Rate reductions tend to weaken local currencies, making gold a more attractive store of value. With policymakers maintaining the direction seen over the previous quarters, there appears little incentive for large holders to liquidate positions. Wu’s observations on central bank acquisitions further reinforce this view, as consistent purchases have supported demand even through earlier sell-offs.
Given the absence of a meaningful price retreat, the velocity at which new highs are reached matters. If escalation continues at the same pace, it may prompt short-term traders to take profits quicker, triggering sudden sell-offs. Absent any unwinding of current positions, the trend could remain intact. However, stretched momentum indicators suggest that any small shift in sentiment may result in sharper reactions compared to earlier months.
Leverage And Liquidity Risks
From a technical standpoint, prior resistance points turned into support, with each upward leg reinforcing confidence among buyers. The $2,600-$2,650 range may serve as the first test should selling occur, as historical trading volumes in that range indicate interest. Li’s models suggest that if prices retrace toward this zone without a sharp uptick in liquidation, momentum could reset without breaking the broader trend.
Monitoring positions among leveraged participants will be necessary. Excessive optimism could lead to a crowded trade, leaving less room for sustained advances without a breather. When traders like Patel and others increase exposure near relative highs, it often coincides with choppier price movement. If higher leverage is employed at these elevated levels, sudden reversals could accelerate.
Policymakers continue aligning with a looser stance, creating a setting where traditional safe-haven assets remain in focus. While no market rises indefinitely, timing the shifts requires careful observation of how buyers behave near recent peaks. The weight of institutional interest has underpinned this rally, but should sentiment waver, the sheer scale of positioning could exacerbate moves in either direction.
